Analysis and Evaluation of Market Entry Modes into the Asia-Pacific Region

Based on the Example of a German SME in the Industrial
Goods Business

Established in the degree course
- Production and Management -
at the University Of Applied Sciences Steyr

Diploma thesis for
the Academic Degree Dipl.-Ing. (FH)
for Technical-scientific Professions

Presented by:
Thomas Andexer

Bangkok, 2006

I

PREFACE

To the subject. The apparent consequences of the rapidly proceeding economic globalisation are the tremendous rise of global - transnational business activities and the skyrocketing number of companies operating on an international or even global scale. This development, earmarked by a steadily increasing dynamism, leads to a rising pressure particularly to those firms, which have so far not taken an international expansion into consideration. Parallel to the general trend towards internationalisation, the marketing term has expanded with the term of internationality. In fact, the international marketing perspective has already been integrated as the state-of-the-art managerial thinking in a business world which equals more a worldwide market place than ever before. The fundamental topic of this thesis, and the probably most complex topic in the process of international marketing, is the question of the appropriate foreign market entry strategy. The compromised complexity arises mostly from both the wide range of alternative market entry modes and the complexity of the market entry mode decision as a whole - in the view of the situational context of the individual firm - for which no universal formula exists. Above all, the chosen market entry mode must ensure future sustainable competitive advantage, while transnational market penetration shows increased complexity and dissimilarity throughout geographical distances, cultural barriers and complexity of operations.
This thesis recognises that not only multinational companies are involved in the process of internationalisation, but also the so called SMEs - micro, small and medium-sized enterprises, which accumulate for the large ma-jority of businesses in Europe and North America. Furthermore, this thesis considers the tremendous economic growth of many countries in the Asia-Pacific region, which are partly characterised by significant cultural differences and often restricting market regulations, which add additional difficulties to the market entry mode decision. Despite the broad range of publications to international market entry strategies, the attempt to systematically transfer the theory to an actual situational context of a company has been little practised until today. Therefore, the present thesis at hand aims in particular to establish a guideline for the answer of the question of how to incrementally - with the help of a feasibility study and a

II

scoring model - move from the analysis of the general theory to the evaluation of a situational influenced case study, with a steadily increasing degree of focus.
In particular, this thesis is targeted for managers of SMEs who are actively pursuing international market opportunities and who are facing the difficult question of the appropriate market entry mode into countries of the Asia-Pacific region, hosting some of today′s most attractive economic areas. The primary theme is the need for managers to design and execute international market entry strategies with the highest possible degree of suitability to their individual situation. Concluding, this thesis demonstrates an alternative approach for SMEs, particularly in the industrial goods business, to deal with the difficulties to enter the Asia-Pacific region. It shows how to be able to gradually add several focused perspectives to finally succeed in the evaluation of an existing strategy. In doing so, this thesis aims to provide a guideline and motivation.
Acknowledgments. I would like to thank all those who have contributed to the development of this thesis. I am particularly indebted to Dr. Kai K.O. Baer and Dr. Rainer Gaus, the founders of the AdPhos Plc. in Germany as well as DI Wolfgang Nickl, the Managing Director of Serwik Co., Ltd. in Thailand for generously providing the necessary corporate information as the sole basis of this thesis. Moreover, I would like to thank Mag. Christian Stadlmann, my tutor at the University of Applied Sciences in Steyr, Austria, for the ongoing professional support and productive comments and feedback. I also would like to thank the University of Applied Sciences Steyr as an open-minded and inspiring education centre, which always provided me the necessary flexibility in the first place, in order to being able to make extraordinary international experiences. I would also like to thank Mr. Pascal Orzech for the countless productive discussions about stylistic questions. Above all I would like to thank my parents and brothers, who always supported and encouraged me on my way.

Bangkok, in August 2006
Thomas Andexer

III

BRIEF CONTENTS

Part 1: General Introduction and Theoretical Context 1
Chapter I: The Discussed Topic 1
Chapter II: The Framework of the Thesis 3
Chapter III: The AdPhos Plc. and the Writer′s Motivation 7
Part 2: International Marketing ­ An Introduction 9
Chapter IV: The Trend Towards Internationalisation 10
Chapter V: The Definition of International Marketing 16
Chapter VI: The Process of International Marketing 20
Part 3: International Strategy - Market Entry Modes 24
Chapter VII: Incentives to Go Global 25
Chapter VIII: International Corporate-Level Strategy and its Correlation to Market Entry Strategy 29
Chapter IX: International Market Entry ­ An Overview 32
Chapter X: Three Chosen Focuses 48
Part 4: Feasibility Study of the Market Entry Modes 58
Chapter XI: Introduction to the Feasibility Study 58
Chapter XII: Feasibility Study of the Market Entry Modes in Consideration
of the Three Chosen Focuses 61
Chapter XIII: The Result of the Feasibility Study and Resume 92
Part 5: The Asia-Pacific Market Entry of a German SME 99
Chapter XIV: The AdPhos Plc 99
Chapter XV: The Asian Coil-Coating Market ­ A Short Digression 109
Chapter XVI: AdPhos′ Market Entry into the Asia-Pacific Region 114
Chapter XVII: The AdPhos Plc. and Serwik Co., Ltd. in Bangkok, Thailand ­ A Strategic Alliance 122
Part 6: Outlook, Evaluation & Resume 127
Chapter XVIII: Outlook 127
Chapter XIX: Evaluation of AdPhos′ Market Entry into the Asia-Pacific Region .. 129
Chapter XX: Resume ­ Final Statement 142

IV

CONTENTS

PREFACE I
BRIEF CONTENTS III
CONTENTS IV
LIST OF FIGURES VII
LIST OF TABLES VIII
ABSTRACT IX
ZUSAMMENFASSUNG X
1 PART 1: GENERAL INTRODUCTION AND THEORETICAL
CONTEXT 1
1.1 Chapter I: The Discussed Topic 1
1.2 Chapter II: The Framework of the Thesis 3
1.2.1 Methodical Approach 3
1.2.2 Content Structure 4
1.2.3 The Boundaries of this Discourse 6
1.3 Chapter III: Introduction to the Case Study and the Writer′s Motivation 7
2 PART 2: INTRODUCTION TO INTERNATIONAL MARKETING 9
2.1 Chapter IV: The Trend Towards Internationalisation 10
2.1.1 Internationalisation of SMEs ­ Key Players in a Global Economy? 14
2.2 Chapter V: The Definition of International Marketing 16
2.3 Chapter VI: The Process of International Marketing 20
2.3.1 Market Entry Strategies - The Focus of this Thesis 22
2.3.2 International Marketing and its Link to International Strategy 22
3 PART 3: INTERNATIONAL STRATEGY - MARKET ENTRY MODES 24
3.1 Chapter VII: Incentives to Go Global 25
3.1.1 Company Internal Factors 25
3.1.2 Company External Factors 27
3.2 Chapter VIII: International Corporate-Level Strategy and its Correlation to Market Entry Strategy 29
3.2.1 Multidomestic Strategy 30

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3.2.2 Global Strategy 30
3.2.3 Transnational Strategy 31
3.3 Chapter IX: International Market Entry ­ Overview 32
3.3.1 Key Decision 1: Where? ­ Country Choice 32
3.3.2 Key Decision 2: When? ­ Timing Strategy 36
3.3.3 Key Decision 3: How? ­ Market Entry Mode 38
3.4 Chapter X: Three Chosen Focuses 48
3.4.1 Geographical Focus: The Asia-Pacific Region 48
3.4.2 Focus on Company Characteristics: SMEs 53
3.4.3 Focus on the Business Type: Industrial Goods Business 55
4 PART 4: FEASIBILITY STUDY OF THE MARKET ENTRY MODES 58
4.1 Chapter XI: Introduction to the Feasibility Study 58
4.2 Chapter XII: Feasibility Study of the Market Entry Modes in Consideration of the Three Chosen Focuses 61
4.2.1 Exporting 61
4.2.2 Licensing 67
4.2.3 Franchising 70
4.2.4 Foreign Contract Manufacturing Agreements 73
4.2.5 Strategic Alliances 75
4.2.6 Joint Ventures 79
4.2.7 Acquisitions 84
4.2.8 Greenfield Operations 88
4.3 Chapter XIII: The Result of the Feasibility Study 92
4.3.1 The Answer to Sub-Question 1 of the Research Problem 95
4.3.2 Additional Interpretation and Conclusion of the Feasibility Study 96
5 PART 5: THE ASIA-PACIFIC MARKET ENTRY OF A GERMAN SME 99
5.1 Chapter XIV: The AdPhos Plc. 99
5.1.1 Corporate History 99
5.1.2 Company Profile 102
5.2 Chapter XV: The Asian Coil-Coating Market ­ A Short Digression 109
5.2.1 Introduction to the Coil-Coating Industry 109
5.2.2 Comparison of the Global Coil Coating Markets 109
5.2.3 Conclusion 113
5.3 Chapter XVI: AdPhos′ Market Entry Into the Asia-Pacific Region . 114
5.3.1 Incentives to Enter the Asia-Pacific Region 114
5.3.2 Chronology of the Asia-Pacific Market Entry 114
5.3.3 Analysis of AdPhos′ Market Entry Strategy 117
5.4 Chapter XVII: The AdPhos Plc. and Serwik Co., Ltd. in Bangkok, Thailand ­ A Strategic Alliance 122
5.4.1 Introduction 122

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5.4.2 Characteristics of the Strategic Alliance 123
6 PART 6: OUTLOOK, EVALUATION AND RESUME 127
6.1 Chapter XVIII: Outlook 127
6.1.1 Future Market Trends in the Asia-Pacific 127
6.1.2 Future Developments of the Strategic Alliance 128
6.2 Chapter XIX: Evaluation of AdPhos′ Market Entry Mode Decision 129
6.2.1 Introduction to the Evaluation Model 129
6.2.2 The Result of the Scoring Model ­ Quantified Evaluation 132
6.2.3 The Answer to Sub-Question 2 of the Research Problem 134
6.2.4 Additional Interpretation 134
6.2.5 Derived Recommendations 137
6.3 Chapter XX: Resume ­ Final Statement 142
BIBLIOGRAPHY 145
LIST OF ACRONYMS 147
APPENDIX 149

VII

LIST OF FIGURES

Figure 1: Content structure: Theoretical analysis (Part 1-4) 4
Figure 2: Content structure: Case-based evaluation (Part 5-6) 5
Figure 3: Share of companies involved in exporting based on different magnitudes 15
Figure 4: The environmental influences on international marketing (SLEPT approach) 17
Figure 5: The International marketing (strategy) process 21
Figure 6: The market entry strategy decision as the focus of this thesis 22
Figure 7: Geographically dispersed vs. geographically concentrated strategy35
Figure 8: The waterfall-strategy 37
Figure 9: The sprinkler-strategy 38
Figure 10: Market entry modes in a categorised overview 39
Figure 11: Example of the evolution of a manufacturer′s entry mode decision 46
Figure 12: Countries of the Asia-Pacific region 50
Figure 13: Three criteria defining SMEs 53
Figure 14: The new thresholds for SMEs 54
Figure 15: Cross-border mergers and acquisitions in selected crisis
countries, 1995-2000 (in billion U.S. $) 85
Figure 16: The AdPhos Plc. ­ a medium-sized company 103
Figure 17: AdPhos - group of consolidated companies 104
Figure 18: Relative contribution of AdPhos′ business segments to total sales 106
Figure 19: Shift in regional market shares of the coil coating production for end-user markets, steel and aluminium - 2001-2004 111
Figure 20: Coil coating production output for end-user markets in `000 tonnes, steel and aluminium ­ 1999-2004 111
Figure 21: Indices of the coil coating production output of selected Asia-Pacific countries, 1999-2004 112
Figure 22: Footprints in the Asia-Pacific region: Thailand, China, South Korea and Japan 118
Figure 23: AdPhos′ worldwide footprints ­ a geographical dispersed strategy 120
Figure 24: Entering the Asia-Pacific region with the NIR technology: AdPhos waterfall strategy 121
Figure 25: Serwik′s territorial exclusivity: The ASEAN member countries 124
Figure 26: Scoring scale for the suitability of the entry mode to the current objective 131

VIII

LIST OF TABLES

Table 1: The top 15 transnational companies by foreign assets 12
Table 2: Linkages between the global corporate- and the global marketing strategy 23
Table 3: Initial systematisation of the market entry modes based on the chosen criteria 45
Table 4: Key Economic Figures of the Asia-Pacific Region 52
Table 5: Definition of the compatibility indices 60
Table 6: Regional correlation of manufacturing strategic alliances, 1990-1999 77
Table 7: Typical contribution in East-West partnerships in the early 1990s 80
Table 8: Explanation scheme: Quantification of the feasibility study′s findings 93
Table 9: Quantified result of the feasibility study: Feasible market entry modes in the focused perspective 94
Table 10: Overview of the worldwide number and locations of coil-coating lines, 2004/2005 110
Table 11: Selected market entry and development objectives 130
Table 12: Scoring model: quantified evaluation of the feasible market entry modes 133

IX

ABSTRACT

The business world at the beginning of the 21st century is characterised by a steadily increasing globalisation and the resulting growth of international business operations. The proceeding dynamism of the global markets creates new chances not only for multinational enterprises but also for small- and medium sized companies (SMEs) of all sizes. Particularly, the above-average economic potential of emerging markets, especially in many of the countries of the Asia-Pacific region, is amongst others the leading incentive for the increasing number of cross-border expansions. In this context, the decision for the appropriate market entry strategy is already one of the most difficult ones within the broad topic of international marketing, whereas the choice of target countries with tremendous cultural differences and the specifics of the industrial goods business respectively, lead to an even higher degree of complexity in the decision for the most suitable form of organisation for the international market entry.
The main task of this thesis was to break down the untargeted theory of the market entry modes to the evaluation of a situational context of a genuine company with the help of abstract focus areas in a step-by-step approach.
Starting with a general theoretical overview to the topic area of international marketing and further the alternative market entry modes, the thesis introduces three focus areas with an anticipatory relation to the case study: `The Asia-Pacific region, small- and medium sized enterprises and the industrial goods business′ stand henceforth in the centre of the examination. The core of this thesis represents a feasibility study related to the focused perspective, in which every market entry mode is investigated in its compatibility with the three focus areas. The result of the study, in other words the identification of all feasible entry mode alternatives regarding the focus areas, establishes the basis for the implementation of the case study of the German AdPhos Plc., a medium sized company in the industrial goods business and its penetration of new markets in Asia. As the second core part of this thesis follows the quantified evaluation of AdPhos′ market entry decision with means of a scoring model, whereas AdPhos′ decision for a strategic alliance is confronted with all other ­ after the feasibility study remaining ­ market entry alternatives. The hereby extracted results deliver information to the suitability of the chosen organisation form regarding the individual situation of the company and finally enable the derivation of appropriate and useful recommendations.